3 Ways Banks Make Money Off Broke People

Opening a bank account is an important part of managing your financial life. After all, you'll need an account to put your paychecks into. You can also pay bills out of your checking account, such as your mortgage and credit card bills.

Unfortunately, sometimes opening a bank account can end up being costly. That's because financial institutions sometimes charge a lot of fees -- and many of these expenses are more likely to be borne by people who already have too little money.

In fact, here are three big ways that banks make money off of people who can least afford to lose it.

1. Many banks charge monthly fees if you can't maintain a minimum balance

Many banks charge a fee for people who keep too little money in their account. These banks impose minimum balance requirements, usually based on your average daily balance. For example, you may be charged $10, $12, or $15 if you fail to maintain an average daily balance of $1,000 or $1,500 or some other amount that's hard for broke people to meet.

While it is common for banks to waive this fee if you have a certain amount saved or a certain number of direct deposits made into your account monthly, many people without steady income or a traditional job also can't meet that requirement.

The result is that the people who can least afford it have to choose between paying a fee or going without a banking relationship and dealing with all the hassle and expenses associated with not having a checking account.

2. You could get hit with overdraft fees, bounced check fees, or insufficient funds fees

Overdraft fees and fees for bounced checks are another big way that banks make money off of broke people.

Overdraft fees average around $30 and are charged if you spend more than you have in your checking account. If you try to write a check for an amount you don't have money to cover, your bank may charge you a non-sufficient funds fee, which averages $34.

People who have the money to keep a financial cushion in their account don't have to worry about this. But those who have very little money or who live paycheck to paycheck may have no extra cash in their account. If they forget about a charge or if a check is cashed at the wrong time, the fees could start to pile up quickly.

3. You may be charged a higher interest rate when you borrow

If you have a lot of money, it will likely be easier for you to borrow at an affordable rate. You'll have sufficient proof of income to satisfy lenders, as well as cash reserves. And it may also be easier for you to build good credit since you won't be making late payments due to insufficient funds.

For people who are broke, though, missed payments or maxed out credit cards could make them an unattractive customer for lenders and could damage their credit. Low credit and minimal assets or a limited income can lead to higher interest rate charges when borrowing. That means that people with little money will pay more for loans.

Unfortunately, there's not a whole lot people can do about these issues. Those who don't have a ton of money to spare will need to shop around carefully to find a bank that won't hit them with added fees or higher rates when they need to take a loan. It can take effort, but it's worth it not to let a bank take more money from you when you already may feel like you don't have enough.